Return on investment isn’t a useful measure today.
Oh, this should be interesting. :-)
ROI is an industrial age term, applicable to companies that manufacture things in factories. That era is now over.
Everything is manufactured in a factory. It’s just that some factories are glass-and-steel buildings in Silicon Valley, rather than steampunk buildings with smokestacks. The more things change, the more they remain the same.
Even if a company manufactures things in factories, that process has become commoditized.
Uh…..no. Processes are not commoditized, they’re standardized; products are commoditized. And you’re reducing what is a complex process that products undergo (invention to commoditization) that takes decades to a single sentence, implying immediacy. Doesn’t work like that.
The only true commodities are products which cannot be differentiated based on quality or value provided, and must be sold on price alone. You used the example of milk? Good example. Even milk, at any decent grocery store, is differentiated. Was the cow fed an organic diet?
Point here is that although we can all think of many commodities which we buy solely on price, the process by which that product went from an innovation to a commodity is often decades long. And like milk, even when it becomes a commodity, there are still attempts (sometimes good ones) to differentiate it from others (IOW, de-commoditize) in the eyes of the consumer.
This is because tech products are about innovation, about doing things in a new, and more desirable way.
Everything in business is about innovation, and doing things in a new, more desirable way, not just tech.
By definition, innovation means doing something new, something you have not done before. That means you will experiment, make mistakes, have failures, and learn by trial and error. It means that the first implementation will never be the most efficient implementation. Containing costs is antithetical to innovation.
Again, that’s not unique to technology in the slightest. You’re describing the development of the automobile as much as you are software.
There remain a lot of foolish young manager-wannabes, trained by older executives and academics who cut their teeth in the industrial age, who still use ROI in their work. But they are going to fail. They are going to lose to those who understand that solving problems and creating desirable products has far more leverage than lowering the costs of manufacturing.
Yea…..this isn’t news. Every business school grad knows that there’s more to gain by selling more (top line growth, which is by definition unbounded) than there is by lowering COGS, where there is a law of diminishing returns.
It appears that you are making incorrect assumptions about what those “foolish young manager-wannabes” know and do not know. And that you believe that ROI is a tool used only to measure how far you can drive down COGS. ROI is far more driven by sales than it is by expense cutting. Always has been, always will be.
In the industrial age, the bottom line was the most important thing in business. That is, the cost to make something overwhelmed every other aspect of that product. The best managers kept their costs down better than lesser managers. In the post-industrial age, the top line is the most important thing in business.
Yea…….they already get this. If you have managers in your experience that ONLY thought about cutting expenses, then yes, they were morons. But expense-rationalization remains an important part of turning a profit, which you MUST DO, ultimately.
The cost of innovation is irrelevant if you can innovate.
Uh, no. Betamax. Innovation is secondary to the ability to market and sell. The world is littered with “innovations” that never made a dime. Xerox PARC was overflowing with them.
One interesting way to counter that belligerent demand for an ROI calculation is to just turn the tables. Ask the asker how he calculates the ROI of everything else he does (It’s always a “he”). This will at least start a dialog over what is important.
It’s always a he? With all of our largest and most strategically important tech companies (IBM, HP until recently, Oracle) all run by women, with the exception of MSFT? Shit. The big companies are awash with female managers.
You’ve either failed to make the case to replace ROI, or you really don’t understand how good managers use it. Not sure which. The one thing that I can tell you for sure is businesses will always use the calculation, because it’s necessary to demonstrate profit.